EUR/USD rallied Tuesday, reaching 1.0305 as softer-than-expected U.S. December PPI data drove Treasury yields and the dollar lower. The euro benefited from tightening German-U.S. spreads and a drop in terminal rate expectations for the Fed relative to the ECB. Gains in equities and USD/CNH further supported the pair, though a late-session pullback in stocks and gold tempered EUR/USD’s advance. While Tuesday’s rally eased pressure on EUR/USD shorts, sustained gains will require further signs of disinflation and slowing economic growth in the U.S.

From a technical perspective, EUR/USD shows early signs of recovery. The pair is supported by rising daily RSI and a bullish continuation from Monday’s hammer candle. Key resistance is at 1.0305, with additional barriers at 1.0350 and 1.0400. Support is at 1.0255, with stronger levels near 1.0238, Monday’s low. A sustained break above 1.0305 could signal a deeper recovery, but failure to clear this level may leave EUR/USD vulnerable to renewed selling pressure.

Wednesday’s U.S. CPI and retail sales data will be pivotal for EUR/USD. Softer-than-expected readings could further tighten spreads and diminish the dollar’s yield advantage, allowing EUR/USD to extend its rally. On the other hand, strong inflation or consumption data could reignite concerns about higher yields and inflation, driving the pair lower and potentially putting parity back in focus. Fed speakers will also influence sentiment, with their commentary providing insight into the policy outlook as the euro navigates a critical week for data and sentiment.